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OFFICE EMERGES AS MOST ATTRACTIVE FOR PE INVESTMENTS IN REAL ESTATES:

Published Date : 01/12/2016

The year 2016 is expected to witness record investments since 2008 totaling up to INR 483 billion (USD 7.2 billion) in real estate assets, according to international property consultants Cushman & Wakefield. Representing a growth of 52% from the previous year, inflows in 2016 are likely to be led by commercial office assets that would witness stake sales in large office portfolios.

Of the total inflows into the realty sector, nearly half (INR 244 bn) is expected to be made in commercial office assets, marking the highest ever annual investments in office assets noted since 2008. Led by a revival in the commercial office sector and the potential to list under REITs, this year has been witnessing continued interest in in pre-leased office assets. The residential sector, on the other hand, is likely to account for 33% (INR 160 bn) of the total investments in 2016 as investors continue to invest only in solid projects of renowned developers that would have garner strong sales. Domestic investors are likely to be the most active in the residential asset class, accounting for approximately 82% of the total investments in the asset class.

The retail sector garnered investments of INR 42 bn, more than a four-fold jump from last year’s investments of INR 10 bn last year. Investors have preferred completed and leased malls with low vacancies anticipating a revival in the retail sector, apart from the potential to list mall assets under REITs.The retail sector will garner investments of INR 42 bn, a nearly four-fold jump from last year’s investments of INR 10 mn last year. Investors prefer completed and leased malls with low vacancies anticipating a revival in the retail sector, apart from the potential to list mall assets under REITs.

The year 2016 is expected to witness the highest share of investments in the office space owing to some large marquee deals expected to close during the fourth quarter. The next two years are likely to witness continued momentum of investments into the office sector as new investment-grade projects come into supply. While investments into the residential sector have been solid this year, investors may approach a cautious outlook towards the asset class in light of continuing subdued demand,” Anshul Jain, Managing Director, India Cushman & Wakefield said.

Delhi-NCR is expected to lead in private-equity inflows during 2016 with INR 197 Bn investments, owing to a large marquee office deal that is likely to close in Gurgaon during the last quarter. It would garner 51% share in office investments and surpass Mumbai for the first time since 2013.

In Mumbai, which is expected to witness INR 193 bn of total inflows during the year, 53% of the investments are likely to be made in office assets, followed by 35% in the residential asset class. A large deal expected to close in Mumbai during the fourth quarter would help the financial capital garner 42% share of office investments. However, in the residential asset class, Mumbai is expected to garner the highest investments of INR 67 bn during the year, with majority of the investments made by domestic funds.

Unlike NCR & Mumbai Bengaluru is likely to witness higher investments into the residential asset class. Investments of nearly INR 28 bn (69% share) are expected in the residential asset class in Bengaluru. Traditionally driven by end-users, the residential market in Bengaluru has been comparatively resilient to the housing slowdown seen across the country. Owing to the resilient market, as well as a faster gestation period in residential assets, investors have preferred to plough in funds into the IT city’s residential market.

Pune, which is likely to witness total inflows of INR 17 bn during 2016, is likely to see approximately INR 10 bn (59% share) of the investments in the residential asset class. While Pune accounted for about 17% of newly launched units in 2016 across the top seven cities, it has also witnessed a 27% y-o-y increase in new unit launches, indicating optimistic sentiments amongst developers. Moreover, with Pune being selected to be developed into a “smart city”, PERE investments in the city are expected to increase going forward.

With Hyderabad’s commercial office market expected to grow by leaps, roughly INR 7 bn (70% share) of the investments in the city are likely to be in the burgeoning office sector. The city has seen a steep rise in demand for commercial office spaces with half of the supply expected in 2017 already pre-committed. Since 2014, the state government has been proactively implementing policies to attract investors and business to setup their offices in city. These factors have helped in reinstating faith amongst investors and businesses in Hyderabad.